General Observations on the Four Companies
Emerson Electrichas an enormous total market value, dwarfing
the other three companies combined.* It is one of our “good-will
giants,” to be commented on later. A financial analyst blessed (or
handicapped) with a good memory will think of an analogy
between Emerson Electric and Zenith Radio, and that would not be
reassuring. For Zenith had a brilliant growth record for many
years; it too sold in the market for $1.7 billion (in 1966); but its prof-
its fell from $43 million in 1968 to only half as much in 1970, and in
that year’s big selloff its price declined to 22^1 ⁄ 2 against the previous
top of 89. High valuations entail high risks.
Emery Air Freightmust be the most promising of the four compa-
nies in terms of future growth, if the price/earnings ratio of nearly 40
times its highest reported earnings is to be even partially justified.
The past growth, of course, has been most impressive. But these fig-
ures may not be so significant for the future if we consider that they
started quite small, at only $570,000 of net earnings in 1958. It often
proves much more difficult to continue to grow at a high rate after
volume and profits have already expanded to big totals. The most
surprising aspect of Emery’s story is that its earnings and market
price continued to grow apace in 1970, which was the worst year in
the domestic air-passenger industry. This is a remarkable achieve-
ment indeed, but it raises the question whether future profits may
not be vulnerable to adverse developments, through increased com-
petition, pressure for new arrangements between forwarders and air-
lines, etc. An elaborate study might be needed before a sound
judgment could be passed on these points, but the conservative
investor cannot leave them out of his general reckoning.
Emhartandeltra. Emhart has done better in its business than in
the stock market over the past 14 years. In 1958 it sold as high as 22
times the current earnings—about the same ratio as for the DJIA.
Since then its profits tripled, as against a rise of less than 100% for
the Dow, but its closing price in 1970 was only a third above the
A Comparison of Four Listed Companies 335* At the end of 1970, Emerson’s $1.6 billion in market value truly was “enor-
mous,” given average stock sizes at the time. At year-end 2002, Emerson’s
common stock had a total market value of approximately $21 billion.